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Tuesday, 28 February 2017

Asian shares lost their grip on Tuesday but were still on track for a winning month, bolstered by gains on Wall Street as investors awaited a speech by U.S. President Donald Trump for signals on tax reform and infrastructure spending.

In Europe, Germany's DAX and Britain's FTSE were expected to open higher.

MSCI's broadest index of Asia-Pacific shares outside Japan erased earlier modest gains and edged down slightly by mid-afternoon. But it was still up more than 3 percent this month and more than 9 percent for the year so far.

On Monday, U.S. stocks edged up, with the Dow Jones Industrial Average closing at a record high for a 12th straight session, after Trump said he would talk about plans for "big" infrastructure spending in his first major policy address to Congress on Tuesday (9 pm ET Feb 28/0200 GMT on March 1).

"Twelve in a row and counting as the Dow closed higher for yet another consecutive record close, as well as new record highs for both major U.S. benchmarks, and this looks set to translate into a positive European open this morning," wrote Michael Hewson, Chief Market Analyst at CMC Markets UK.

Japan's Nikkei stock index pared its gains but still ended up 0.1 percent, up 0.4 percent for February and nearly flat for the year to date, as investors awaited Trump.

"This could be like the case of his inauguration speech, in which expectations were high, but he didn't come up with any concrete details," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

"The market does not want a repeat of that, and wants to hear some actual plans, or there will be disappointment," she said.

Treasury Secretary Steven Mnuchin said in a televised interview on Sunday that Trump will use the event to preview some elements of his sweeping tax reform plans.

Trump will seek to boost Pentagon spending by $54 billion in his first budget proposal and slash the same amount from non-defense spending, including a large reduction in foreign aid, a White House budget official said.

The dollar slipped 0.3 percent to 112.43 yen but still held above Monday's nadir of 111.920, which was its lowest since Feb. 9. The euro was up 0.1 percent on the day at $1.0599.

Hawkish comments from a U.S. Federal Reserve official also bolstered U.S. Treasury yields and underpinned the dollar.

Dallas Fed President Robert Kaplan said on Monday that the Fed might need to raise interest rates in the near future to avoid falling behind the curve on inflation.

The yield on benchmark 10-year U.S. Treasuries, which had slumped to more than five-week lows last week, stood at 2.363 percent in Asian trade, not far from their U.S. close of 2.367 percent on Monday.

Crude oil prices were largely steady, as expectations of higher U.S. crude production offset reports of high compliance with OPEC's production cut agreement.

U.S. crude was up 0.3 percent on the day at $54.20 per barrel, while Brent crude added 0.4 percent to $56.14.

Spot gold edged up 0.1 percent to $1,254.48 an ounce but remained shy of a 3-1/2-month peak scaled on Monday as investors awaited Trump's speech.

World stocks fell on Monday, after two huge European merger and acquisition deals fell through and billionaire U.S. investor Warren Buffett warned that while stocks are cheap, they are currently unpredictable and prone to a sudden, steep correction.

The dollar was steady and U.S. Treasury yields struggled to bounce much from the biggest weekly fall since July, while French bond yields hit a one-month low as polls showed centrist Emmanuel Macron would easily beat far-right candidate Marine Le Pen if the two face up in May's presidential election runoff.

Europe's benchmark index of leading 300 shares .FTEU3 fell 0.2 percent to 1,456 points, led lower by insurers and exchange operators. Assicurazioni Generali fell 3.7 percent after bank Intesa Sanpaolo (ISP.MI) said late on Friday it had decided not to pursue a possible tie-up with Italy's biggest insurer.

Meanwhile, the proposed 29 billion euro merger between the London Stock Exchange and Deutsche Boerse to create Europe's biggest stock exchange looked dead in the water due an inability to meet European antitrust demands. Shares in both companies fell by as much as 3 percent on Monday.

"The regulatory hurdles were always a risk, and with Brexit, there are additional hurdles to clear that seem close to insurmountable now," said Neil Wilson, senior market analyst at ETX Capital.

Euro zone stocks performed better, with the index of leading 50 shares .STOXX50E up 0.2 percent, lifted by a 0.8 percent rise in euro zone bank stocks .SX7E. Intesa Sanpaolo rose as much as 5 percent after the bank pulled its bid for Generali.

MSCI's benchmark world stock index slipped 0.2 percent, on course for its first consecutive daily fall for three weeks. On Thursday, it hit a record high of 447.67 points.

U.S. futures pointed to a flat open on Wall Street ESc1 DJc1. Though U.S. stocks clawed their way to a higher close on Friday, major indices spent much of that day's session in negative territory, suggesting increased caution.

It was still the Dow's 11th consecutive record high on Friday, the longest such run since 1987, leading some to suggest it could be prone for a correction. Warren Buffett, chairman and chief executive of Berkshire Hathaway Inc, told CNBC on Monday that Wall Street is unpredictable and "could go down 20 percent tomorrow".

FRENCH POLLS

In bond markets, the focus was on France, where the latest polls showed that centrist Emmanuel Macron would score a more convincing victory over far-right and anti-euro Marine Le Pen in the presidential election's runoff vote.

France's 10-year bond yield fell 2.5 basis points to a one-month low of 0.88 percent and the gap over safe-haven German yields narrowed to around 70 basis points. Last week that spread reached around 84 bps, the widest since late 2012.

Meanwhile, U.S. bond yields remained under pressure as investors turn their attention to U.S. President Donald Trump's State of the Union address on Tuesday, in which he is expected to unveil some elements of his plans to cut taxes in his joint address to Congress.

The 10-year U.S. Treasury yield edged up 1 basis point to 2.32 percent US10YT=RR from Friday's five-week low of 2.31 percent. Last week's fall of nearly 11 basis points was the steepest weekly decline since July last year.

In currencies, the dollar was flat on an index basis .DXY. The euro was up 0.2 percent at $1.0580 EUR=, but the dollar was 0.1 percent higher against the yen at 112.30 yen JPY= and sterling was down 0.4 percent at $1.2415

Sterling buckled on media reports that Scottish nationalists were preparing to demand a fresh independence vote, possibly announcing as early as March to coincide with UK Prime Minister Theresa May's plan to formally trigger Britain's exit from the European Union.

In addition to Trump's address to Congress, U.S. rates and the dollar will take their cue this week from Federal Reserve Chair Janet Yellen's speech on Friday.

"In order for the Fed to really have the option of hiking next month, Yellen will have to make a much stronger case relative to what's been said recently," said Deutsche Bank market strategist Jim Reid.

In commodities, Brent crude rose 0.9 percent to $56.48 per barrel while U.S. West Texas Intermediate was up 0.8 percent at $54.42 per barrel as a global supply glut appeared to ease.

Investors raised their bets on rising Brent crude oil prices to a new high last week, data from the InterContinental Exchange showed on Monday, breaking the 500,000-lot mark for the first time on record.

Money managers also raised their bullish U.S. crude futures and options positions in the week to Feb. 21 to the highest on record, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Investors now hold 951,312 lots' worth of U.S. and Brent crude futures and options, equivalent to nearly 1 billion barrels of oil and valued at more than $52 billion, based on current Brent and WTI benchmark prices.

"With speculators increasing their bullish bets on U.S. crude to an all-time high, the risk of disappointment and subsequent downward spiral in prices has never been greater," oil brokerage PVM's Stephen Brennock said.

Among the risks is the level of compliance to the deal between the Organization of the Petroleum Exporting Countries (OPEC) and other producers to bring down oil output by about 1.8 million barrels per day (bpd).

OPEC's record compliance with the deal has surprised the market, and the biggest laggards, the United Arab Emirates and Iraq, have pledged to catch up with their targets.

The International Energy Agency put OPEC's average compliance at a record 90 percent in January. Based on a Reuters average of production surveys, compliance stands at 88 percent.

A Reuters survey of OPEC production later this week will show compliance for February.

Looming over the success of the deal is the reaction of U.S. shale producers to rising prices and their ability to increase output.

U.S. drillers added five oil rigs in the week to Feb. 24 to 602, the most since October 2015, energy services firm Baker Hughes Inc said on Friday.

Over the past two weeks the U.S. implied shale oil rig count went up by 15.

Monday, 27 February 2017

The lobby group for Wall Street's structured finance companies has partnered with the trade association for the blockchain industry to explore ways blockchain technology can streamline the $1.9 trillion U.S. securitization market.

The partnership, set to be announced on Monday, will see the Chamber of Digital Commerce and the Structured Finance Industry Group work together on research and other projects, the groups said.

The effort kicked off with the publication of a study looking at how distributed ledger technology can be deployed to simplify the securitization market, which despite its size, remains highly manual and opaque.

According to the study by Deloitte, blockchain could help increase the certainty of securitization transactions and improve market transparency, which in turn would lead to better liquidity.

Blockchain is an immutable shared ledger of transactions that is maintained by a network of computers, rather than a centralized authority. As it creates a shared golden source of data, it can reduce errors and the need for reconciliation.

Financial institutions have been ramping up their investments in blockchain in the hopes that it can help make some of their processes more efficient and cheaper to manage.

Asian stocks declined on Monday, led by financials, as a renewed drop in sovereign bond yields on political concerns prompted some investors to move to the sidelines after a recent equities rally.

European stocks indicated a generally higher start, according to IG Markets predictions.

Much interest is focussed on U.S. President Donald Trump's speech to a joint session of Congress on Tuesday night, where he is expected to unveil some elements of his plans to cut taxes.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.3 percent, near the day's lows. The index, which fell 0.7 percent on Friday, is still up more than 11 percent since end-December.

Japanese shares fell to 2-1/2 week lows on concerns that a stronger yen would crimp corporate earnings.

"Investors recently confirmed that Japanese corporate earnings will likely be strong next fiscal year. But if the dollar falls below 110 yen, such hopes will change," said Takuya Takahashi, a strategist at Daiwa Securities.

On a forward valuation basis, Asia-Pacific shares are trading traded at a price/earnings multiple of 15 times compared to nearly 19.6 times in the U.S. and 16 times in Europe, according to Thomson Reuters data.

"Until we see some strong earnings, we are in for a correction phase," the head of equities at a U.S. fund in Hong Kong predicted.

Though U.S. stocks clawed their way to a higher close on Friday, major indices spent much of that day's session in negative territory, suggesting increased caution. Index futures were barely in the green.

BOND SIGNALS

Sovereign bond yields fell on Friday, pushing yields down in Australia and Japan on Monday, as a renewed flight to safety bid thanks to weak stock markets and a looming election in France that poses a key political risk for markets.

Investors fear far-right National Front leader Marine Le Pen might win the presidential election this year and lead France out of the euro zone. Polls show Le Pen losing to either centrist Emmanuel Macron or right-wing Francois Fillon, but few people are willing to count her out.

Ten-year German bond yields have dropped nearly 30 basis points so far this month, far outpacing a 13 basis point decline in yields of comparable U.S. debt.

In Asia, yields on five-year Japanese benchmark debt plumbed to their lowest levels since mid-November, at minus 0.14 percent, while ten-year Australian bonds edged three basis points lower to 2.71 percent.

In currencies, the dollar JPY= scored some early gains against the Chinese yuan and the Philippine peso but remained in narrow ranges against major currencies.

Many investors have a core overweight position on the greenback betting on a rebound in the global economy, firmer commodity prices and a U.S. rate hikes. Goldman Sachs Asset Management expects the dollar to gain against the Aussie, kiwi and the yen.

In commodities, Brent crude LCOc1 rose 0.75 percent to $56.43 per barrel while U.S. West Texas Intermediate was up 0.6 percent at $54.33 per barrel as a global supply glut appeared to ease.

Billionaire Warren Buffett, whose stock picks over several decades have turned Berkshire Hathaway Inc into one of the most successful conglomerates, delivered another black eye to the investment industry on Saturday, saying investors should "stick with low-cost index funds."

"When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients," Buffett, widely considered one of the world's best investors, said in his annual letter to shareholders.

"Both large and small investors should stick with low-cost index funds."

Buffett, whose annual letter is scrutinized by investors who consider him "the Oracle of Omaha," estimated that the search for outperformance has caused investors to "waste" more than $100 billion over the past decade.

On Saturday, he called Vanguard Group founder Jack Bogle "a hero" for his early efforts to popularize index funds.

His own Berkshire Hathaway gained 20.8 percent per year from 1965 to 2016, compared to the S&P 500's 9.7 percent gain, the company said.

Yet Buffett has often said he believes most stock investors are better off with low-cost index funds than paying higher fees to managers who often underperform.

In 2014, Buffett said he plans to put 90 percent of the money he leaves his wife when he dies into an S&P 500 index fund and 10 percent in government bonds.

During the financial crisis, Buffett bet a founder of the asset management company Protege Partners LLC $1 million that a Vanguard S&P 500 stock index fund would outperform several groups of hedge funds of over the 10 years through 2017. The index fund is up 85.4 percent, Buffett said, while the hedge fund groups are up between 2.9 percent and 62.8 percent.

On Saturday, Buffett said the figures leave "no doubt" that he will win the bet. He plans to donate the money to Girls Inc of Omaha, a charity.

It looks like some investors are following Buffett's advice. Despite a roaring stock market in the United States, actively managed mutual funds bled $342 billion last year, their second straight year of losses. Passive index funds and exchange-traded funds attracted nearly $506 billion.

But Tim Armour, CEO of Capital Group Cos Inc, said index funds can expose investors to losses when markets turn sour. Capital, the active manager behind American Funds, is a top shareholder in Berkshire and oversees $1.4 trillion altogether.

"It's important to say that we don't dispute the data that has led Mr. Buffett and others to form their views," Armour said in a statement.

"However, a fairly simple fact has gotten lost in the debate. Simply put, not all investment managers are average."

LITTLE TO SAY ON TRUMP, SUCCESSION

Buffett's Berkshire Hathaway Inc on Saturday said its fourth-quarter profit rose 15 percent from a year earlier, as gains from investments and derivatives offset lower profit from the Burlington Northern Santa Fe railroad and other operating units.

Buffett has run Berkshire since 1965. The company also owns dozens of stocks including Apple Inc Coca-Cola Co Wells Fargo & Co and the four biggest U.S. airlines, and more than one-fourth of Kraft Heinz Co

This year's letter and annual report gave no clues about who will succeed the 86-year-old Buffett, a question that shareholders and Wall Street have speculated about increasingly in recent years.

But Buffett lavishly praised Berkshire executive Ajit Jain, widely considered a candidate to succeed Buffett as chief executive, for smoothly running much of the conglomerate's insurance businesses.

Jain joined Berkshire in 1986, and Buffett immediately put him in charge of National Indemnity's small, struggling reinsurance operation. Jain has since "created tens of billions of value for Berkshire shareholders. If there were ever to be another Ajit and you could swap me for him, don't hesitate. Make the trade!"

Berkshire, which became one of the top 10 Apple Inc. investors in 2016, reported a gain on that investment of more than $1.6 billion after shares of the iPhone maker surged, the annual report showed.

Berkshire’s airline investments suggest that Buffett has overcome his two-decade aversion to the sector after an unhappy - though, he has said, profitable - investment in US Air Group.

Unlike last year, Buffett, who was a vocal supporter of Hillary Clinton, did not mention U.S. President Donald Trump by name. Buffett did, however, talk up the vibrancy of U.S. society and its inclusion of immigrants, one of the most polarizing issues under the Trump administration.

"From a standing start 240 years ago - a span of time less than triple my days on earth - Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers."

Friday, 24 February 2017

Stock prices climbed to record highs worldwide for a third straight session on Thursday, propelled by an oil rally after a surprise drop in U.S. crude inventories and comments from U.S. President Donald Trump and his Treasury chief on plans for job creation and tax reform.

The dollar was bogged down a day after minutes from the Federal Reserve's latest policy meeting showed the U.S. central bank was in no rush to raise interest rates.

Treasury and euro zone government bond yields declined as European Central Bank policymakers also signaled they were not getting carried away by signs the euro zone economy is gathering strength.

This outlook for policy accommodation lifted gold prices to a three-month high near $1,250 an ounce.

Equity markets around the world have advanced this year as traders bet on tax cuts, less regulation and more infrastructure spending from Trump and the Republican-controlled Congress to bolster the U.S. economy.

Details on these stimulus programs have been sparse, raising doubts whether bigger corporate profits will materialize.

On Thursday, U.S. Treasury Secretary Steven Mnuchin spoke of wanting to see "very significant" tax reform passed before Congress' August recess and said the Trump administration was looking closely at border tax issues.

"That's starting to put some details on tax reform. That's reigniting some of the animal spirits," said Bill Northey, chief investment officer for the private client group at U.S. Bank in Helena, Montana.

Trump told executives at major U.S. companies he has a plan that includes tax cuts and infrastructure spending to create millions of domestic jobs.

The MSCI world equity index, which tracks shares in 46 nations, rose 0.15 percent to 446.69 after touching a record peak at 447.67.

On Wall Street, the Dow Jones Industrial Average booked an all-time intraday high for a 10th straight day, while the S&P 500 touched a record high before retreating. Nasdaq fell for a second day, suffering its biggest one-day loss so far in February.

The Dow ended up 34.72 points, or 0.17 percent, at 20,810.32; the S&P 500 finished 0.99 point, or 0.04 percent, higher at 2,363.81 and the Nasdaq Composite closed down 25.12 points, or 0.43 percent, at 5,835.51.

Europe's broad FTSEurofirst 300 index finished 0.2 percent lower at 1,470.18, scaling back from a 14-month peak set on Wednesday.

Tokyo's Nikkei ended down 0.04 percent.

Gains in energy shares due to a jump in oil prices helped lift the equity market.

A weaker dollar in the wake of Fed minutes that were perceived as less hawkish whetted appetite for gold and bonds.

The dollar index slipped 0.3 percent to 100.96.

The benchmark 10-year U.S. Treasury note yield hit a two-week low, last down 3 basis points at 2.388 percent. The German 10-year Bund yield decreased 4 basis points at 0.233 percent, hovering at its lowest level since early January.

World stocks held near record highs on Thursday and the dollar eked out minimal gains after minutes of the latest U.S. Federal Reserve meeting showed policymakers in no big hurry to raise interest rates.

U.S. and euro zone government bond yields fell or held steady as the minutes did nothing to firm up expectations of a rate rise in March. That remains a slim prospect, with futures pricing in only an 18 percent chance, according to the CME Group's FedWatch tool.

The pan-European STOXX 600 stocks index was marginally higher and close to 14-month highs touched on Tuesday. A 4 percent fall in miner Rio Tinto and a fall of nearly 5 percent in EasyJet, which were among companies whose shares went ex-dividend, weighed on the index.

Miners generally dipped as metals fell.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent, hovering near the highest level since July 2015 it hit on Wednesday. Earlier, the index lost as much as 0.15 percent.

MSCI's world index also nudged higher and was within half a point of Wednesday's record high.

The minutes showed many Fed policymakers said it may be appropriate to raise rates "fairly soon" if jobs and inflation data met expectations. But they also highlighted deep uncertainty over President Donald Trump's economic program.

Many in markets expect rates to rise in June.

The dollar edged up less than 0.1 percent against a basket of major currencies but held below highs hit on Wednesday, having fallen immediately after the minutes were released.

The euro, which has been buffeted by investor nerves over France's presidential election, to be held in April and May, was flat at $1.0556. The yen was also barely changed at 113.28. Sterling strengthened 0.2 percent to $1.2468.

Along with Trump's policies on taxes, spending and trade, markets have been trying to gauge his attitude to the dollar.

He said before his inauguration that the dollar's strength against the Chinese yuan was "killing us", raising concern in the "strong dollar" policy espoused by recent U.S. administrations could change.

However, Treasury Secretary Steven Mnuchin praised the strong dollar on Wednesday, telling the Wall Street Journal it reflected confidence in the economy.

Yields on 10-year U.S. Treasury bonds held steady at 2.415 percent, having fallen after the minutes.

German equivalents, the benchmark for euro zone borrowing, edged up 1 basis point to 0.28 percent, having closed on Wednesday at 0.27 percent.

French 10-year yields fell 2 bps to 1.01 percent, reducing the premium investors demand to hold French rather than German debt, as the emergence of a centrist pact eased concerns over the upcoming election.

Francois Bayrou decided not to stand and struck an alliance with centrist candidate Emmanuel Macron, a move that is seen boosting Macron's chances. Far-right, anti-euro party leader Marine Le Pen increased her first-round lead, a new poll showed, but is still not expected to win the run-off.

"Yesterday's developments in France were positive for French bonds and broader risk appetite," said Orlando Green, European fixed income strategist at Credit Agricole in London.

Oil prices rose after data showed a decline in U.S. crude stockpiles as imports fell. Brent crude last traded at $56.56, up 72 cents a barrel.

Prices have been rising since the Organisation of Petroleum Exporting Countries and other oil producers agreed output cuts last year.

"It's a battle between how quick OPEC can cut without shale catching up," said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

Copper fell almost 1 percent to $5,982 a tonne on concern about fresh regulation that could affect China's property boom.

Gold rose less than 0.1 percent to $1,238 an ounce, supported by uncertainty over the Fed rate outlook. Zinc and nickel also fell more than 1 percent.

Thursday, 23 February 2017

Asian stocks steadied on Thursday after earlier losses, aided by a weaker dollar as markets studied Federal Reserve meeting minutes that indicated both readiness and caution over raising interest rates.

European markets were headed for a mixed start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 .FTSE to open 0.3 percent lower, and Germany's DAX .GDAXI and France's CAC 40 .FCHI to start the day slightly higher.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was unchanged, hovering near the highest level since July 2015 it hit on Wednesday. Earlier, the index lost as much as 0.15 percent.

Japan's Nikkei .N225 closed fractionally lower, while Australian shares ended the day down 0.35 percent.

South Korean shares .KS11 were little changed after the central bank kept interest rates steady at 1.25 percent, as expected, for an eighth straight month.

China's CSI 300 index .CSI300, which touched a 2-1/2 month high earlier on Thursday, was 0.5 percent lower after regulators circulated a draft of new rules for the asset management industry aimed a curbing financial risks.

Hong Kong shares .HSI, which early on Thursday touched their highest level since September, pulled back to trade 0.3 percent below Wednesday's close.

Overnight on Wall Street, the Dow Jones Industrial Average .DJI ended up almost 0.2 percent, its ninth straight record-close.

That optimism however, didn't flow through to other indexes, with the S&P 500 .SPX and the Nasdaq .IXIC both closing about 0.1 percent lower.

The dollar teetered between slight gains and losses as investors took note of Fed policymakers' uncertainty over a lack of clarity on President Donald Trump's economic program. Voting members generally saw only a "modest risk" of inflation increasing significantly and believed the Fed would have "ample time" to respond if it did.

The greenback's earlier gains were driven by parts of the minutes of the Fed's Jan. 31-Feb. Meeting, which said it may be appropriate to raise rates again "fairly soon" should jobs and inflation data be in line with expectations.

"A look at the market's reaction would suggest that the perception of the minutes was a relatively dovish one," Jingyi Pan, market strategist at IG in Singapore, wrote in a note. "This is in comparison to hawkish expectations following Fed chair Janet Yellen's address last week."

"Indeed, the discussion on fiscal policy did suggest that a portion of Fed members believe that the uncertainty could put the Fed off course for an early hike," she added.

The dollar also took heart earlier from comments by U.S. Treasury Secretary Steve Mnuchin who praised the currency's strength as a reflection of confidence in the economy, and a "good thing" in the long run.

But that effect, too, wore off as the Asian day progressed, as he had already expressed such views before, said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"We have to remember Mnuchin was referring to the dollar's long-term prospects, and that he did suggest before that too strong of a dollar could have negative effects in the short-term," Murata said.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, inched up 0.1 percent to 101.33.

The dollar stood at 113.24 yen JPY=, just 0.1 percent firmer, having lost some of its early bounce following Wednesday's 0.7 percent tumble.

U.S. 10-year Treasury yields slipped to 2.4148 percent on Thursday from 2.418 percent at Wednesday's close. They touched a near-two-week low of 2.391 on Wednesday.

The euro was steady at $1.05625. On Wednesday, it fell below $1.05 for the first time in six weeks on concern anti-European Union candidate Marine Le Pen could win France's presidential election in May.

Those political worries abated somewhat after veteran centrist Francois Bayrou offered an alliance that could boost independent candidate Emmanuel Macron in the election.

In commodities, oil prices gained following American Petroleum Institute data showing a surprise drop in U.S. crude stocks last week. Official data from the U.S. Department of Energy's Energy Information Administration is expected on Thursday.

Sterling rose almost 1 percent against the euro on Tuesday, to its highest in two months, after another opinion poll showing far-right French presidential candidate Marine Le Pen gaining ground hit the single currency.

The pound rose as high as 84.45 pence per euro, up 0.9 percent on the day, after the Elabe poll showed the lead of centrist Emmanuel Macron and conservative rival Francois Fillon over Le Pen falling to 18 and 12 points respectively.

The poll suggests anti-EU nationalist Le Pen may have more chance of springing a surprise if she makes it through to the second round of the elections in May.

And the closer a French populist shock to follow last year's U.S. presidential and Brexit votes becomes, the more the pound will begin to look like a safe haven, dealers say.

"The threat of politician Marine Le Pen winning the election ... has sparked jitters," Lukman Otunuga, an analyst with retail brokers FXTM in London said.

Sterling traded flat on the day against the dollar after a rollercoaster ride which earlier saw it threaten another fall below $1.24.

The pound has risen around 4 percent against the euro and currencies such as the Japanese yen since mid-January but has steadily drifted lower against the dollar in that time.

There was a measured message from Bank of England Governor Mark Carney and a group of policymakers testifying in parliament, who defended the bank's low interest rates but also noted rising inflation.

Ian McCafferty said that rising UK price growth was now closer to testing the bank's tolerance levels.

"On the one hand, they don't want to hike [rates] because growth appears to be slowing and we think growth slows further in 2018," said BNP Paribas currency strategist Sam Lynton-Brown.

"But on the other hand there is tolerance as they've said many times as to the extent to which they're willing to let inflation overshoot the target."

Analysts at Commerzbank saw sterling consolidating near its 55- and 100-day moving averages of $1.2415/07.

"We maintain a negative bias (on the pound) but patience is needed," Commerzbank's Karen Jones said, echoing the views of other major banks who have called for a further fall but said it may take more outright negative news on the economy and the shape of Brexit talks to trigger it.

Britain's upper house of parliament was holding a second day of debate over launching the Brexit process and various pressure points were showing elsewhere.

UK farming and environment minister Andrea Leadsom said farming policy was set for a major shake-up when the country leaves the EU because the current system has too much red tape and too few incentives to use new technology.

Another eurosceptic UK lawmaker also said Britain should block any attempt by Germany to shift the headquarters of the London Stock Exchange to Frankfurt after it merges with rival Deutsche Boerse.

Wednesday, 22 February 2017

The dollar lost ground in Asian trading on Wednesday as investors awaited the minutes of the Federal Reserve's latest meeting for clues as to the pace of interest rate hikes, while Europe's political woes kept a bruised euro under pressure.

The Fed minutes due to be released later on Wednesday could either reinforce or undermine recent hawkish comments from central bank policy makers.

Cleveland Fed President Loretta Mester said late on Monday in a speech in Singapore that she would be comfortable raising rates at this point if the economy maintained its current performance.

Philadelphia Fed President Patrick Harker also told reporters on Monday that he would support an interest rate increase at a mid-March policy meeting as long as inflation, output and other data until then continue to show the U.S. economy is growing.

The dollar was 0.2 percent lower at 113.45 yen, edging away from its peak of 114.955 yen touched a week ago, which was its highest since late January.

"The dollar was pushed up by the Fed talk, but its upside is heavy in the Asian session, due to factors including Japanese companies' seasonal repatriation," said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo.

"We're all waiting for the minutes, to see if members talked about reducing the Fed's balance sheet," he said.

Money market futures continued to price in approximately a one-in-five chance of a rate hike at the Fed's next meeting in March.

The dollar index, which tracks the greenback against a basket of six major currencies, was last down slightly at 101.33 after hitting a six-day high of 101.600 overnight.

Bank of Japan Governor Haruhiko Kuroda said the chance of the central bank lowering interest rates deeper into negative territory was low for now, backing market expectations that no additional monetary easing would be forthcoming in the near future.

Japanese Finance Minister Taro Aso said that Japan was not thinking now of issuing negative rate Japanese government bonds.

The euro was up 0.1 percent at $1.0545 after slipping to a low of $1.0526 overnight. A break of the Feb. 15 low of $1.05215 would put it in its deepest trough since Jan. 11.

The euro remained pressured by market concerns about the anti-European Union rhetoric from French presidential candidate Marine Le Pen ahead of the first round of French elections on April 23.

An Elabe poll showed the lead of centrist Emmanuel Macron and conservative rival Francois Fillon over Le Pen falling to 18 and 12 points respectively, suggesting Le Pen may have more chance of springing a surprise if she can make it through to the second round of the elections in May.

Sterling got a lift from the euro's woes, rising 0.3 percent against the dollar to $1.2504. The euro gave up 0.2 percent against the pound to 84.34 pence, after earlier falling as low 84.29, its lowest since Dec. 22.

"There's some sterling shortcovering, fuelled by euro/sterling falling to a two-month low," said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.

"We've got fourth-quarter GDP out later, which will be the key focus there, particularly as any upward revision is likely to propel euro/sterling further downward," she said, referring to the second estimate of UK gross domestic product.

But underpinning the single currency, purchasing manager index PMI reports showed the euro zone economy expanded much faster and more smoothly than expected.

Eurozone private sector and manufacturing growth unexpectedly accelerated to near a six-year high in February and job creation reached its fastest since August 2007.

The Dow rose 0.6 percent on Tuesday to notch a record closing high for the eighth straight session, lifted by strong earnings reports from Wal-Mart and Home Depot.

That followed a strong showing in European equities, which were boosted by upbeat German and French factory activity data, with Germany's DAX rising to its highest in nearly two years.

The euro, however, has not followed suit as the currency markets focused more on potential political turbulence in the euro zone.

The common currency was up a modest 0.1 percent at $1.0544 after losing more than 0.7 percent the previous day. Polls suggesting improving support for far-right French presidential candidate Marine Le Pen have undermined sentiment and weighed on the common currency.

The dollar had risen overnight following hawkish comments from Cleveland and Philadelphia Fed Presidents Loretta Mester and Patrick Harker.

Mester expressed comfort at raising rates at this point, while Harker reportedly said a March rate hike was on the table.

Financial markets are waiting on the Fed's Jan. 31-Feb. 1 policy meeting minutes due later in the day for fresh hints on the central bank's stance toward interest rates.

The focus will be on the Fed's economic assessment in the minutes, which should emphasize a recent uptick in economic data, although the market may still remain skeptical about the chances of a near-term rate hike, said Christopher Wong, senior FX strategist for Maybank.

The dollar slipped 0.2 percent to 113.485 yen after climbing to a five-day high of 113.780 overnight.

The greenback's index against a basket of major currencies was a shade lower at 101.340 after gaining 0.5 percent the previous day.

PESO BOOST

A recent big mover in currencies was the Mexican peso which rallied against the dollar on news that the country's central bank will offer up to $20 billion in currency hedges to tame market volatility.

The Mexican currency surged 1.7 percent against the dollar overnight, breaking the psychological level of 20 per dollar or the first time since Donald Trump's November U.S. election victory. Hurt by Trump's threats to impose trade barriers on Mexico and hit by the prospect of higher U.S. rates, the peso weakened to a record low of roughly 22 per dollar in January.

"This is the most important change in the approach to FX policy since the Tequila Crisis," said Marco Oviedo, an economist at Barclays in Mexico City, referring to the economic crisis that pushed Mexico to adopt a free-floating peso in 1994.

The Australian dollar, which has enjoyed steady gains this year on country's relatively high yields and the rise in the price of iron ore, climbed 0.3 percent to $0.7695.

In commodities, crude extended gains from the previous day when it touched 1-1/2-month peaks on OPEC's optimism for greater compliance with its deal with other producers including Russia to curb output.

Brent crude rose 0.4 percent to $56.91 a barrel and U.S. crude added 0.3 percent to $54.51 a barrel.

Tuesday, 21 February 2017

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Higher U.S. yields bolstered the greenback, after U.S. markets were closed for the Presidents Holiday on Monday. The yield on benchmark 10-year notes US10YT=RR stood at 2.443 percent in Asian trading, compared with its U.S. close on Friday at 2.425 percent.

"Technically, it's important for the dollar to get back to 115, which is a nice figure to target, but I think a lot of investors are probably playing from the long position and it's difficult to get a new wave of buyers to give it that extra kick," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

"Once the dollar starts to waver, people are quick to take profits," he said.

The dollar index, which tracks the U.S. unit against a basket of six major rival currencies, rose 0.3 percent to 101.210 .DXY.

The minutes from the Federal Reserve's last policy meeting due to be released on Wednesday are a key focus for investors.

"The minutes could change the market's trend. They may have talked about reducing the Fed's balance sheet. Or the minutes may show some members are quite positive about rate hikes," said Yukio Ishizuki, senior strategist at Daiwa Securities.

"That sort of signal could fan speculation of a rate hike in March. If you look only at the firmness in recent U.S. economic data, there's no reason not to raise rates in March," he said.

Money market futures FFJ7 are currently pricing in about a one in five chance of a rate hike next month.

The euro was on the defensive, under pressure from fears that the French Presidential election could upset the status quo, as rising anti-establishment sentiment surfaced after last year's Brexit and the U.S. election.

The premium that investors demand to hold French bonds instead of German debt rose to its highest since late 2012 after a poll showed right-wing candidate Marine Le Pen narrowing the gap with more centrist opponents.

The euro was down 0.3 percent at $1.0580 EUR=, after moving little on Monday. It has fallen more than 2 percent so far this month.

"Everybody has learned lessons from last year's big surprises. People probably don't want to take big risks. The euro could face further pressure given there's still time before the election," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

The first round of the French Presidential election is scheduled on April 23, with the run-off between the top two contenders on May 7.

The euro has been helped by the lack of progress between Socialist candidate Benoit Hamon and hard-left candidate Jean-Luc Melenchon in talks on cooperation.

Fears that cooperation on the left could lead to a run-off between either Hamon or Melenchon and Le Pen, eliminating three main moderate candidates, have dogged the euro since Friday when the two leftists said they were discussing such cooperation.

Another comfort for the euro came from Brussels, where Greece and its international lenders agreed to let experts work out new reforms to Greek pensions, income tax and the labor market that would allow Athens to eventually qualify for more cheap loans.

Greece needs a new tranche of financial aid under its 86 billion euro bailout by the third quarter of the year to meet debt repayments, but agreeing on a fresh aid could prove difficult as not only France but also Germany and possibly Italy face elections later this year.

Against the yen, the euro traded at 120.26 EURJPY=R, up 0.2 percent as it got a crosstrading lift from the yen's descent against the dollar. The euro slumped to 119.65 yen on Monday, its lowest since Feb. 9.

The Australian dollar slipped 0.3 percent to $0.7666 AUD=D4, moving away from last week's three-month high of $0.7732 but underpinned by firm commodity prices.

European stocks rose on Monday, with gains in telecoms and banks offsetting a big fall in Unilever, while uncertainty over political developments and the timing of a U.S. interest rate hike kept the dollar in check.

U.S. markets were closed for the Presidents Day holiday, and this restricted activity in Europe and Asia.

Unilever shares fell nearly 9 percent at one point after U.S. food company Kraft Heinz Co withdrew on Sunday a proposal for a merger with its larger rival in the face of stiff resistance.

The Anglo-Dutch group's shares were last down 7.4 percent and were the day's biggest fallers.

Despite that slide, the pan-European STOXX 600 index edged up 0.1 percent to just below a 14-month high touched last week.

A 3 percent gain in Deutsche Telekom helped push the index higher after a Reuters report that Japan's SoftBank (9984.T) is prepared to give up control of Sprint to Deutsche Telekom's T-Mobile US to clinch a merger of the two U.S. wireless carriers.

Royal Bank of Scotland was the day's biggest gainer as shareholders welcomed a plan to scrap the proposed sale of its Williams & Glyn unit.

Japan's Nikkei .N225 rose 0.1 percent while China's blue-chip CSI 300 index .CSI300 closed up 1.5 percent, its biggest gain in six months, after media reports on Friday that pension money may begin flowing into the market as soon as this week.

The dollar dipped 0.1 percent against a basket of major currencies .DXY after U.S. bond yields fell on Friday.

The euro rose 0.1 percent to $1.0623 while the yen fell 0.2 percent to 113.07 per dollar. Sterling rose 0.5 percent to $1.2466.

The dollar hit its highest against the basket for more than a month last week after U.S. Federal Reserve Chair Janet Yellen said it would be unwise to delay raising interest rates, before pulling back on uncertainty over President Donald Trump's policies, particularly on trade.

Minutes of the Fed's latest policy meeting on Wednesday will be examined for any clues to the timing of the next hike, and Fed officials speak at five events this week.

Cleveland Fed President Loreta Mester said in Singapore on Monday she would be comfortable raising rates if the economy maintained its current performance.

POLITICS

The focus in euro zone debt markets was on politics.

French 10-year government bond yields rose after an opinion poll published on Monday showed far-right candidate Marine Len Pen narrowing her centrist and center-right rivals' lead in the final round of the presidential election in May.

This pushed the gap over benchmark German 10-year yields to 84 basis points, its widest since late 2012. It later pulled back to 72 bps.

Yields on safe-haven two-year German bonds hit a record low, at minus 0.85 percent.

"It all seems to be driven by the move in French bonds after a poll that showed Le Pen's improving fortunes in the second round of voting," Rabobank strategist Lyn Graham-Taylor said.

Among commodities, oil rose, although an increase in the number of U.S. drilling rigs dragged on the price. Brent crude LCOc1 rose 38 cents a barrel to $56.19.

Copper rose on supply worries after the world's second-biggest copper mine said it could not deliver promised shipment due to export permit problems. Three-month copper on the London Metal Exchange was up 0.7 percent at $6,004 a tonne,

Gold edged up 0.2 percent to $1,237 an ounce.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Monday, 20 February 2017

Investing in foreign assets has proven the merits of diversification, and most individual investors take advantage of the benefits of international assets. However, unless you invest in foreign securities issued in U.S. dollars, your portfolio will gain an element of currency risk. Currency risk is the risk that one currency moves against another currency, negatively affecting your overall return. Investors can accept this risk and hope for the best, or they can mitigate it or eliminate it completely. Below are three different strategies to lower or remove a portfolio's currency risk.

Hedge the Risk with Specialized Exchange-Traded Funds

There are many exchange-traded funds (ETFs) that focus on providing long and short exposures to many different currencies. For example, the ProShares Short Euro Fund (NYSEARCA: EUFX) seeks to provide returns that are the inverse of the daily performance of the euro. A fund like this can be used to mitigate a portfolio's exposure to the performance of the euro.

If an investor purchased an asset that is based in Europe and denominated in the euro, the daily price swings of the U.S. dollar versus the euro will affect the asset's overall return. The investor would be going "long" with the euro in this case. By also purchasing a fund like the ProShares Short Euro Fund, which would effectively "short" the euro, the investor would cancel out the currency risk associated with the initial asset. Of course, the investor must make sure to purchase an appropriate amount of the ETF, to be certain that the long and short euro exposures match 1-to-1.

ETFs that specialize in long or short currency exposure aim to match the actual performance of the currencies on which they are focused. However, the actual performance often diverges due to the mechanics of the funds. As a result, not all of the currency risk would be eliminated, but a vast majority can be. As of April 2016, there were ETFs that provide long and short exposure for the U.S. dollar, the Japanese yen, the European euro, the Australian dollar, the Swiss franc, the Chinese yuan and others.

Use Forward Contracts

Currency forward contracts are another option to mitigate currency risk. A forward contract is an agreement between two parties to buy or sell a specific asset on a specific future date, at a specific price. These contracts can be used for speculation or hedging. For hedging purposes, they enable an investor to lock in a specific currency exchange rate. Typically, these contracts require a deposit amount with the currency broker. The following is a brief example of how these contracts work.

As of April 1, 2016, one U.S. dollar equaled 111.97 Japanese yen. If a person is invested in Japanese assets, has exposure to the yen and plans on converting that yen back to U.S. dollars in six months, he can enter into a six-month forward contract. Imagine that the broker gives the investor a quote to buy U.S. dollars and sell Japanese yen at a rate of 112, roughly equivalent to the current rate. Six months from now, two scenarios are possible: The exchange rate can be more favorable for the investor, or it can be worse. Suppose the exchange rate is worse, at 125. It now takes more yen to buy 1 dollar, but the investor would be locked in to the 112 rate and would exchange the predetermined amount of yen at dollars at that rate, benefiting from the contract. However, if the rate had become more favorable, such as 105, the investor would not get this extra benefit because he would be forced to conduct the transaction at 112.

Use Currency Options

Currency options give the investor the right, but not the obligation, to buy or sell a currency at a specific rate on or before a specific date. They are similar to forward contracts, but the investor is not forced to engage in the transaction when the contract's expiration date arrives. In this sense, if the option's exchange rate is more favorable than the current spot market rate, the investor would exercise the option and benefit from the contract. If the spot market rate was more favorable, then the investor would let the option expire worthless and conduct the foreign exchange trade in the spot market. This flexibility is not free, and the options can represent expensive ways to hedge currency risk.

Rock-bottom interest rates hurt more big European banks in 2016 than in the previous year, but the worst could soon be over with the prospect of rising borrowing costs rippling from the United States to Europe.

Low rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 debt crisis.

But the policy has been politically divisive, prompting fierce criticism from famously thrifty Germans as the returns on savings in Europe's biggest economy dwindled to nothing.

It also imposed a heavy cost on still fragile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for storing them.

Last year marked a low ebb, according to a survey by Reuters of 20 large European banks conducted in mid-February.

While seven in that group saw net interest income fall during 2015, that number increased to 12 in 2016, with the average dip more than 7 percent. That was steeper than the roughly 5 percent slip on average in 2015.

Such income is the difference between interest charged on, say, a loan, and the cost of holding a deposit. It is a bellwether of earning power, closely watched by investors, and its decline bodes ill for the sector.

TRUMP'S PROMISED STIMULUS BUOYS HOPES

Many executives are now pinning their hopes on a change in direction for central banks given that rate hikes appear to be on the cards in the United States this year - and ultimately a paring back of easy-money policies in Europe.

"It's usually the U.S. that leads the pack," said Charles Goodhart of the London School of Economics, a former member of the Bank of England's Monetary Policy Committee.

"If (U.S. President Donald) Trump does manage to get an expansionary fiscal policy, there will be increases in interest rates," he said, adding that the effect would also be felt in Europe.

Trump has pledged to stimulate growth in the world's largest and most influential economy through a combination of heavy infrastructure investment and deep corporate tax cuts.

In December, the U.S. Federal Reserve raised interest rates and signaled a faster pace of increases in 2017.

For European banks, the shift in rates cannot happen soon enough.

Lars Machenil, chief financial officer of France's BNP Paribas, one of Europe's biggest lenders, said the difference could be hundreds of millions of euros of extra income.

"The lowering of interest rates has had a negative effect on the top line. If that would be reversed, we would see something similar back ... but it will take time," he said. Low rates cost BNP 1 billion euros of lost revenue between 2013 and 2016.

In 2016, Switzerland's Credit Suisse saw interest income dip by about 19 percent, while at Germany's Commerzbank and Deutsche Bank , it fell by about 13 and 8 percent respectively, the Reuters survey found.

UniCredit's interest income dipped by about 6 percent. Spain's Bankia saw a drop of about one fifth.

While successful in helping a brittle euro zone economy gradually revive from the debt crunch in the short term, zero or negative rates have, in the eyes of critics, struck at a central tenet of banking - lending on the back of deposits - and turned the principle of saving for retirement on its head.

There are signs that the struggle of frustrated lenders is being noticed in Frankfurt, seat of the European Central Bank.

Yves Mersch, a member of the ECB's executive board, the nucleus of euro zone policy-setting, recently said it needed to take interest rate cuts off the table, which would mark a retreat from its policy of cheap money.

"How much longer can we continue to talk about 'even lower rates' as being a monetary policy option?" Mersch said.

PENALTY DEPOSITS

Penalising banks for storing money makes holding deposits, traditionally the bedrock of any lender, more expensive, and this prompts some to steer savers toward fund products for which a fee can be charged.

UBS CEO Sergio Ermotti has warned that the world's biggest wealth manager could pass on the cost to depositors if sub-zero rates persist. So far, only one Swiss bank, Alternative Bank Switzerland, has imposed such charges.

Another way around the problem is keeping deposits low and bolstering lending.

Sweden has generally done better in this respect than most. That is something that Barclays analyst Mike Harrison attributes to a lower average level of deposits, which cost a bank money if it cannot lend and must pay a penalty for storing them at the country's central bank.

The ECB imposes a so-called negative rate equivalent to 4 euros annually on each 1,000 euros that lenders deposit with the central bank. Banks in Sweden and Switzerland, outside the neighboring euro zone, pay a similar charge.

"Swedish banks have managed best to avoid the impact of zero rates due to the fact that they held fewer deposits," said Harrison. "That made it easier to earn a healthy margin on their loans."

Swedbank, for instance, boosted its lending last year by 7 percent to about 1.5 trillion crowns, while its deposits from the public were roughly half that and rose more slowly.

The Netherlands' ING and Sweden's Swedbank, where lending outpaced the inflow of deposits, posted a roughly 9 and 3 percent increase respectively in such interest income, the Reuters study found.

Germany's Commerzbank tried a broadly similar strategy, cutting deposits from corporate customers by about 22 billion euros. But the cost of penalty or negative rates still squeezed its income by more than 200 million euros in 2016 - roughly a third less than its net profit for the full year.

Michael Heise, chief economist with giant German insurer Allianz and a long-standing critic of cheap-money policies, believes relief is at hand.

"There is finally hope of a change in interest rates," he said. "The tone among policymakers has changed. The evidence is clear. I think we could see rates rise next year."

Friday, 17 February 2017

Asian stock markets took a breather on Friday from their recent surge as investors booked profits, while the dollar inched up after Thursday's slide and optimism over possible renewed supply cuts by OPEC lifted oil prices.

Overnight, Wall Street lost momentum, with the Dow Jones Industrial Average .DJI barely eking out its sixth straight record high, while the S&P 500 .SPX and Nasdaq .IXIC snapped a seven-day winning streak as investors slowed buying to digest recent gains.

U.S. President Donald Trump's first solo news conference on Thursday, where he adopted a combative stance against the news media and deflected questions about contacts between his presidential campaign and Russian operatives, also gave investors pause.

"Apart from a reflection of the slight easing in U.S. market momentum after several strong days, investors are making some greater allowance for rising risk," said Angus Gluskie, managing director of White Funds Management in Sydney. "Trump’s erratic performance in the press conference has had a destabilising influence on investor confidence."

The arrest of Samsung Group chief Jay Y. Lee over his alleged role in a government corruption scandal is also a source of concern, Gluskie said.

Until Thursday, the index had beaten its previous intraday highs for seven consecutive sessions, and closed at 19-month highs in the past two.

A batch of positive economic data out of Asia this week, driven by improving exports and rising commodity prices, has bolstered shares, although concerns linger that any protectionist threats posed by Trump could reverse the recovery.

On Friday, Singapore revised its fourth-quarter gross domestic product growth sharply higher. Earlier in the week, Taiwan raised its 2017 economic growth target to a three-year high, Indonesia's January exports rose at the fastest pace in more than five years and China's January inflation picked up by more than expected to near six-year highs.

Chinese shares slipped after earlier touching a near two-month high after the securities regulator said that, starting Friday, it will relax certain rules on stock index futures trading as restrictions imposed during the 2015 stock market crash are unwound.

The CSI 300 index .CSI300 lost 0.4 percent after gaining as much as 0.5 percent, on track for a weekly advance of the same magnitude.

Hong Kong shares .HSI dropped 0.7 percent, but are still poised to close up 1.6 percent for the week.

The dollar edged up, but remained near the one-week low hit on Thursday, when it posted its biggest one-day drop in more than two weeks, as uncertainty about the timing of the next Federal Reserve rate hike offset the impact of stronger economic data.

Manufacturing activity in the U.S. Mid-Atlantic region surged to its highest in 33 years, housing data indicated a recovery in the sector was on track, and weekly jobless claims pointed to a labour market that continues to tighten.

But traders concluded that Fed Chair Janet Yellen's economic testimony before Congress on Wednesday didn't offer enough conviction that the central bank would raise rates at its next meeting in March.

The dollar climbed almost 0.2 percent on Friday to 113.41 yen JPY=, up by the same percentage for the week. It lost about 0.8 percent on Thursday.

The dollar index .DXY, which tracks the greenback against a basket of trade-weighted peers, was fractionally higher at 100.49, on track to end the week 0.3 percent lower. It tumbled 0.7 percent on Thursday.

The euro was little changed at $1.0671 on Friday, retaining Thursday's 0.7 percent gain, and set to end the week 0.3 percent higher.

The stronger dollar on Friday weighed on gold which slipped 0.1 percent to $1,237.36 an ounce. But the precious metal remains poised for a 0.3 percent rise for the week.

Oil prices built on Thursday's gains, driven by a report that the Organization of Petroleum Exporting Countries may consider extending its oil supply-reduction pact with non-members and may even apply deeper cuts if inventories don't fall to a targeted level.

For now, that optimism appears to be winning the tug of war with concerns over a rise in U.S. production, but the worry is set to leave oil prices with a weekly loss.

U.S. crude added 0.2 percent to $53.42 a barrel, but is headed for a decline of 0.8 percent for the week.

The dollar weakened against a basket of major currencies on Thursday, posting its steepest one-day drop in over two weeks, due to lower U.S. bond yields and uncertainty over the timing of the Federal Reserve's next interest rate increase.

The greenback posted losses for a second day, retreating further from a one-month high set during a winning streak where it touched a five-week peak versus the euro and a 2-1/2 week high against the Japanese yen.

Traders have scaled back bets on a looming U.S. rate hike as they concluded Fed Chair Janet Yellen did not deliver enough conviction at her economic testimony before Congress on Wednesday on whether the Fed's next rate increase would come at its March 14-15 meeting.

However, she signaled more than two rate increases may be possible this year as the economy approaches full employment and inflation closes in on the Fed's 2 percent goal.

"The dollar rally that preceded Yellen's testimony wasn't given more fuel so we are seeing that move fade," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

Investors now await for details from U.S. President Donald Trump on possible proposals on tax cuts, looser regulations and infrastructure spending, traders said.

"With the spotlight on Trump’s policy agenda, the Fed has taken a backseat as their response has become more sensitive to the president’s fiscal initiatives," said Peter Ng, senior currency trader at Silicon Valley Bank in Santa Clara, California.

The dollar index .DXY was last down 0.7 percent at 100.49, below a one-month peak of 101.76 reached on Wednesday.

The greenback scaled back from a 2-1/2 week high of 114.95 yen JPY= on Wednesday against the yen, touching a low of 113.17 yen. It was last down 0.9 percent at 113.15 yen.

The euro gained 0.7 percent at $1.0669, recovering from a five-week trough of $1.052 EUR= set on Wednesday.

Earlier Thursday, the greenback briefly pared its losses against the euro and yen following encouraging data led by a Philadelphia Fed measure on U.S. Mid-Atlantic business activity which hit a 33-year high in February.

Reduced expectations about a rate increase in March, together with declines on U.S. equity indexes, helped revive investors' appetite for U.S. Treasuries, pushing benchmark yields below 2.50 percent

Interest rates futures implied traders saw an 18 percent chance of a rate increase in March FFH7, down from 31 percent on Wednesday, according to CME Group's FedWatch program.

Thursday, 16 February 2017

Asian stocks inched to new 19-month highs on Thursday with thanks to an ongoing rally on Wall Street and bolstered by gains in Chinese stocks while the dollar came in for a bout of profit-taking after a recent bounce.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2 percent to its highest since July 2015. It is up by a tenth this year thanks to more optimistic earnings expectations and an unwinding of bearish emerging market bets.

European stock markets are set to open steady to slightly higher according to index futures.

Some investors said markets were looking slightly overvalued from a technical perspective after the bounce in recent weeks. For example, on a relative strength index (RSI), the MSCI Asia-ex Japan index was at its most overbought since 2015.

"We are seeing some profit-taking at these levels and unless there is a big correction, the broader uptrend in the Hong Kong market seems broadly intact," said Alex Wong, Hong Kong-based director of Ample Finance Group.

Though latest regional export data confirmed an upswing in economic activity in Asia was gathering pace, political uncertainty and anti-globalisation rhetoric from the U.S. made investors cautious of adding big positions.

"In light of these risks, we remain cautiously optimistic on Asian equities, having set a 12-month target for the MSCI Asia ex-Japan of 550 – a 7 percent increase from current levels," said Tuan Huynh, Asia CIO for Deutsche Bank wealth management which manages 312 billion euros globally.

Australian stocks gave up early gains and turned lower on the day after new full-time jobs declined in January, a setback after a recent run of positive data.

CAUTION

Caution was also evident in the currency markets with the dollar's recent bounce running out of steam as investors took profits -- even as fresh data showed a pick up in inflationary pressures.

"Retail sales seemed to have been boosted by higher prices rather than an increase in the real consumption," said Shin Kadota, senior forex strategist at Barclays. "Investors also took profit as the dollar was trading high this week."

Fed Chair Janet Yellen, in her second day of economic testimony before Congress, offered no additional insight on the timing of the central bank's next rate hike after her comments a day earlier had hinted at a fairly hawkish policy stance. Traders may also be leaning towards the Fed delaying a rate increase beyond its March meeting, with the probability of three to four rate hikes by the end of year diminishing slightly, according to the CME FedWatch tool.

The dollar index .DXY, which measures the currency against a trade-weighted basket of six major peers, slipped to 100.92. It rallied to a one-month high of 101.76 on Wednesday.

The Australian dollar was the sole bright spot in Asian currency trade, powering to multi-year peaks against the yen, Swiss franc and euro -- despite a mixed jobs report.

It stood tall versus its U.S. counterpart at $0.7710, having broken key resistance at 77 cents. It briefly popped to a three-month high of $0.7732 after data showed a surprise dip in Australia's unemployment rate.

In commodity markets, oil prices softened as record high U.S. crude and gasoline inventories fed concerns about a global glut. U.S. crude CLc1 was down 0.1 percent at $53.07 a barrel and Brent softened a tad to $55.74 a barrel

Wall Street's record-setting run entered its fifth day on Wednesday, as President Donald Trump repeated his promise of tax cuts and on upbeat economic data that increased the odds of a rate hike and lifted bank stocks.

Trump, in a meeting with top executives at U.S. retail companies, said he would lower taxes substantially and simplify the tax code - echoing a vow he made last Thursday that renewed optimism about the economy and revived the "Trump trade".

His comments boosted already upbeat sentiment after a spate of robust economic data – including bigger-than-expected gains in retail sales and consumer prices in January – that reinforced the strength of the economy.

Federal Reserve Chair Janet Yellen, in a testimony before the House Financial Services Committee, stood by the stance she took on Tuesday that the central bank was on track to raise interest rates at an upcoming policy meeting.

"She (Yellen) has made it clear that she wants to raise rates," said Neil Massa, senior equity trader at Manulife Asset Management in Boston.

"Before she spoke yesterday, the March meeting wasn't in play, but now that is definitely on the table and I think the numbers today bode well for her to do that."

After the economic data, traders raised the odds of a rate hike in March to 26.6 percent from 13.3 percent before the data was released, according to Thomson Reuters data.

Financial stocks .SPSY, which benefit in a higher rate environment, again led the gainers among the 11 major S&P sectors, with a 0.63 percent gain. The rate-sensitive utilities .SPLRCU and real estate .SPLRCR sectors fell the most.

At 11:07 a.m. ET (1808 GMT), the Dow Jones Industrial Average .DJI was up 79.89 points, or 0.39 percent, at 20,584.3.

The S&P 500 .SPX was up 5.07 points, or 0.21 percent, at percent, at 2,342.65 and the Nasdaq Composite .IXIC was up 11.65 points, or 0.2 percent, at 5,794.23.

Procter & Gamble (PG.N) jumped 3.3 percent to $90.79 and gave the biggest boost to the Dow and the S&P after activist investor Trian Fund disclosed a stake in the consumer products company.

Shares of Southwest, United Continental (UAL.N), American Airlines and Delta rose between 2 percent and 4.2 percent after Warren Buffett's Berkshire Hathaway reported investments topping $2.1 billion in each of the carriers.

AIG weighed the most on the S&P, dropping 8.8 percent to $60.95 after the commercial insurer reported a bigger-than-expected quarterly loss.

Declining issues outnumbered advancers on the NYSE by 1,550 to 1,249. On the Nasdaq, 1,357 issues rose and 1,301 fell.

The S&P 500 index showed 60 new 52-week highs and one new low, while the Nasdaq recorded 101 new highs and 16 new lows.